# AQUA SECURITIES L.P. X-17A-5 (2020-03-04) — Broker-dealer annual report - Company: AQUA SECURITIES L.P. - Form: X-17A-5 - Filed: 2020-03-04 - Period: 2019-12-31 - Accession: 0001088943-20-000007 - CIK: 1088943 - File #: 8-51866 - Material weakness: No - Auditor: Ernst & Young LLP - Auditor location: New York, NY - Contact: Pascal Karam - Phone: 212-294-7772 - Signed by: Kenneth Paulson (Chief Financial Officer) Original filing: https://www.sec.gov/Archives/edgar/data/1088943/000108894320000007/AguaBSonlyl.pdf --- {0}------------------------------------------------ ![](_page_0_Picture_0.jpeg) STATEMENT OF FINANCIAL CONDITION Aqua Securities, L.P. December 31, 2019 With Report of!ndependent Registered Public Accounting Firm {1}------------------------------------------------ UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 | 0MB APPROVAL | | | | |---------------------------|---------|-----|----------| | 0MB | Number: | | 3235-012 | | Expires: | August | 31, | 202( | | Estimated | average | | burder | | hours per response 12.00 | | | | 8-51866 SEC FILE NUMBER | ANNUAL AUDITED REPORT | |-----------------------| | FORM X-17A-5 | | PART III | #### **FACING PAGE** **Information Required of Brokers and Dealers Pursuant to Section 17 of the Securities Exchange Act of 1934 and Rule 17a-5 Thereunder** | REPORT FOR THE PERIOD BEGINNING | 01/01/19 | AND ENDING | 12/31/19 | | |--------------------------------------------------------------------------------------|---------------------------------------------------------------------|---------------------------|----------------------------|--| | | MM/DD/YY | | MM/DD/YY | | | | A. | REGISTRANT IDENTIFICATION | | | | NAME OF BROKER-DEALER: | | | | | | Aqua Securities, L.P. | | OFFICIAL USE ONLY | | | | ADDRESS OF PRINCIPAL PLACE OF BUSINESS: (Do not use P.O. Box No.) | | | FIRM ID. NO. | | | 110 East 59th Street | | | | | | | (No. and Street) | | | | | New York | New York | | 10022 | | | (City) | (State) | | (Zip Code) | | | NAME AND TELEPHONE NUMBER OF PERSON TO CONTACT IN REGARD TO THIS REPORT | | | | | | Kenneth Paulson | | | 212-294-7922 | | | | | | (Area Code -Telephone No.) | | | | B. ACCOUNTANT IDENTIFICATION | | | | | INDEPENDENT REGISTERED PUBLIC ACCOUNT ANT whose opinion is contained in this Report* | | | | | | Ernst & Young LLP | | | | | | | (Name -if individual, state last, first, middle name) | | | | | 5 Times Square | New York | New York | 10036-6530 | | | (Address) | (City) | (State) | (Zip Code) | | | CHECK ONE: | | | | | | Certified Public Accountant | | | | | | Public Accountant | | | | | | | Accountant not resident in United States or any of its possessions. | | | | | | FOR OFFICIAL USE ONLY | | | | | | | | | | | | | | | | *\*Claims for exemption from the requirement that the annual report be covered by the opinion of an independent public accountant must be supported by a statement of facts and circumstances relied on as the basis for the exemption. See section 240.17 a-5(e)(2).* SEC 1410 (06-02). {2}------------------------------------------------ #### **AFFIRMATION** I, Kenneth Paulson, affirm that, to the best of my knowledge and belief, the accompanying statement of financial condition pertaining to Aqua Securities, L.P. (the "Partnership"), as of December 31, 2019, is true and correct. I further affirm that neither the Partnership nor any partner, proprietor, principal officer or director has any proprietary interest in any account classified solely as that of a customer. Kenneth Paulson Chief Financial Officer Notary Public CHANTAL M BARRALIS Notary Public, Slate of New York Registration #01 BA6364242 Qualified In **New** York C0unty Commission Expires Sept. 11, 2021 {3}------------------------------------------------ This report contains ( check all applicable boxes): - 0 Facing Page - 0 Report oflndependent Registered Public Accounting Finn. - 0 Statement of Financial Condition. - **D** Statement of Operations. - **D** Statement of Cash Flows. - **D** Statement of Changes in Partners' Capital. - **D** Statement of Changes in Subordinated Borrowings. - 0 Notes to Statement of Financial Condition. - **D** Computation of Net Capital Pursuant to Rule 15c3-1 - **D** Computation for Determination of the Reserve Requirements under Exhibit A of SEC Rule 15c3-3 and Infonnation Relating to the Possession or Control Requirements under SEC Rule 15c3-3. - DA Reconciliation, including appropriate explanation of the Computation of Net Capital Under Rule 15c3-1 and the Computation for Detennination of the Reserve Requirements Under Exhibit A of Rule 15c3-3. - 0 An Oath or Affinnation. - DA copy of the SIPC Supplemental Report. - **D** A report describing any material inadequacies found to exist or found to have existed since the date of the previous audit. {4}------------------------------------------------ ![](_page_4_Picture_0.jpeg) **Ti?l :+1212773�00 ST�ssqwre R:lx:+12127736350 1<¥.tw'itlrk, r•N10036-615:U ey.com** #### Report of Independent Registered Public Accounting Firm To the Partners and Management of Aqua Secur ties, L.P. #### 0 pinion on the Financial Statement We have aud ted the accompany ng statement of financ al cond t on of Aqua Secur ties, L.P. (the "Partnership") as of December 31 , 2019 and the related notes (the "financial statement"). In our o p nion, the f n an cia I statement presents fairly, in all material respects, the financial pos t on of the Partnership at December 31, 2019, in conform ty w th U.S. generally acce pied accounting princi pies. #### Basis for Opinion This financial statement is the respons bil ty of the Partnership's management. Our responsibility is to express an opinion on the Partnership'sfinancial statement based on our aud t. We are a pub l i c accounting firm registered w th the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be i nde pendent w th respect to the Partnership in accordance w th the U.S. fed era I se cu r tie s laws and the applicable rules and regulations of the Secur t es and Exchange C ommi ss i on and the PCAOB. We conducted our aud t in accordance w th the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain re aso nab le assurance ab out whether the financial statement is free of mate r al misstatement, whether due to error or fraud. Our aud t included performing pro ce du res to assess the r sks of material misstatement of the financial statement, whether due to error or fraud, and p erfo rmin g procedures that respond to those risks. Such pro ce du res included examining, on a le st bas s, ev id en ce regarding the amounts and d sclosures in the financial statement. 0 ur aud t also included evaluating the account ng pr nciples used and sign ficant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. We have served as the Partnership's aud tor s nce 2008. February 28, 2020 {5}------------------------------------------------ ### Statement of Financial Condition December 31, 2019 *(In Thousands)* | Assets | | |------------------------------------------------------------------|-------------| | Cash | \$
662 | | Fixed assets, net | 1,610 | | Intangible assets, net | 34 | | Accrued commissions receivable | 6 | | Other assets | 36 | | Total assets | \$
2,348 | | Liabilities, Subordinated Borrowings and Partners' Capital | | | Accounts payable and accrued liabilities | \$
137 | | Payables to related pruties | 45 | | Total liabilities | 182 | | Commitments and contingencies (Note 6) | | | Subordinated borrowings | 2,000 | | Partners' capital: | | | Limited partners | 222 | | General partner | (56) | | Total partners' capital | 166 | | Total liabilities, subordinated borrowings and partners' capital | \$
2,348 | *See notes to statement of financial condition* {6}------------------------------------------------ # Aqua Securities, L.P. Notes to Statement of Financial Condition December 31, 2019 ## *(In Thousands)* ### **1. General and Summary of Significant Accounting Policies** **Description of Business** - Aqua Securities, L.P. (the "Partnership") is a limited partnership organized under the laws of the State of Delaware. The Partnership is 50.49% owned by Cantor Fitzgerald Securities ("Cantor Securities"), a Limited Partner which is a wholly owned subsidiary of Cantor Fitzgerald, L.P. ("Cantor"); 48.51 % owned by BGC Partners, L.P. ("BGC"), a Limited Partner; and 1 % owned by Aqua Securities Holdings, LLC ("Holding Company"), the General Partner, which is owned 51 % by Cantor and 49% by BGC. The Partnership operates an Alternative Trading System ("ATS") to provide anonymous access to pools of block and basket liquidity to institutional buy-side and sell-side firms. The ATS' participants consist of broker-dealers and qualified institutional buyers within the meaning of the Securities and Exchange Commission ("SEC") Rule 144(a)(l). Only equity securities are traded via the ATS. **Basis of Presentation** - The statement of financial condition is presented in accordance with accounting principles generally accepted in the United States of America ("U.S. GAAP"). **Use of Estimates** - Management makes estimates and assumptions that affect the reported amounts of the assets and liabilities, and the disclosure of contingent assets and liabilities. Management believes that the estimates utilized in preparing the statement of financial condition are reasonable. Estimates, by their nature, are based on judgment and available information. As such, actual results could differ materially from the estimates included in the statement of financial condition. **Revenue Recognition-**The Partnership derives its revenues primarily through commissions from brokerage services. Commissions revenue is derived from securities whereby the Partnership connects buyers and sellers in the OTC and exchange markets and assists in the negotiation of the price and other material terms. These transactions result from the provision of service related to executing and settling transactions for clients. Commissions revenue is recognized at a point in time on the trade-date, when the customer obtains control of the service and can direct the use of, and obtain substantially all of the remaining benefits from the asset. The Partnership records a receivable between the trade-date and settlement date, when payment is received. **Cash and Cash Equivalents** - The Partnership considers all highly liquid investments with maturity dates of 90 days or less at the date of acquisition to be cash equivalents. **Fixed Assets, net-Fixed** assets are recorded at historical cost and depreciated over their estimated economic useful lives, generally three to five years, using the straight-line method. In accordance with U.S. GAAP guidance, the Partnership capitalizes qualifying computer software costs incurred during the application development stage and amortizes them over an estimated useful life of three years on a straight-line basis. {7}------------------------------------------------ # Aqua Securities, L.P. Notes to Statement of Financial Condition (continued) ### December 31, 2019 *(In Thousands)* ### **1. General and Summary of Significant Accounting Policies** *(continued)* **Intangible Assets, net** - Intangible assets consist of costs incurred in connection with the filing and registration of patents. Capitalized costs related to the filing of patents are generally amortized on a straight-line basis over their estimated useful lives, generally three years. **Income Taxes** - Income taxes are accounted for under U.S. GAAP Accounting Standards Codification ("ASC") Topic 740, *Income Taxes,* using the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the statement of financial condition carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. To the extent that it is more likely than not that deferred tax assets will not be recognized, a valuation allowance would be established to offset their benefit. ASC Topic 740, *Income Taxes,* clarifies the accounting for income taxes by prescribing a "more likely than not" recognition threshold that a tax position is required to meet before being recognized in the statement of financial condition. In addition, the guidance clarifies the measurement of uncertain tax positions, classification of interest and penalties, and requires additional disclosures on tax reserves. **New Accounting Pronouncements-In** June 2016, the FASB issued ASUNo. *2016-13,Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments,* which requires financial assets that are measured at amortized cost to be presented, net of an allowance for credit losses, at the amount expected to be collected over their estimated life. Expected credit losses for newly recognized financial assets, as well as changes to credit losses during the period, are recognized in earnings. For certain purchased financial assets with deterioration in credit quality since origination ("PCD assets"), the initial allowance for expected credit losses will be recorded as an increase to the purchase price. Expected credit losses, including losses on off-balance-sheet exposures such as lending commitments, will be measured based on historical experience, current conditions and reasonable and supportable forecasts that affect the collectability of the reported amount. The new standard became effective for the Paitnership beginning January 1, 2020, under a modified retrospective approach, and early adoption is permitted. In November 2018, the FASB issued ASU No. 2018-19, *Codification Improvements to Topic 326, Financial Instruments-Credit Losses,* to clarify that operating lease receivables accounted for under ASC 842, *Leases,* are not in the scope of the new credit losses guidance, and, instead, impairment of receivables arising from operating leases should be accounted for in accordance with ASC 842, *Leases.* In April 2019, the FASB issued ASU No. 2019-04, *Codification Improvements to Topic 326, Financial Instruments-Credit Losses, Topic 815, Derivatives and Hedging, and Topic 825, Financial Instruments.* The amendments to ASU No. 2016-13 clarify the {8}------------------------------------------------ ### Notes to Statement of Financial Condition (continued) ### December 31, 2019 *(In Thousands)* #### **1. General and Summary of Significant Accounting Policies** *(continued)* scope of the credit losses standard and address guidance related to accrued interest receivable balances, recoveries, variable interest rates and prepayments, among other issues. In addition, in May 2019, the FASB issued ASU No. 2019-05, *Financial Instruments-Credit Losses (Topic 326): Targeted Transition Relief* The amendments in this ASU allow entities, upon adoption of ASU No. 2016-13, to irrevocably elect the fair value option for financial instruments that were previously carried at amortized cost and are eligible for the fair value option under ASC 825-10, *Financial Instruments: Overall.* In November 2019, the FASB issued ASU No. 2019-11, *Codification Improvements to Topic 326, Financial Instruments-Credit Losses.* The amendments in this ASU require entities to include certain expected recoveries of the amortized cost basis previously written off, or expected to be written off, in the allowance for credit losses for PCD assets; provide transition relief related to troubled debt restructurings; allow entities to exclude accrued interest amounts from certain required disclosures; and clarify the requirements for applying the collateral maintenance practical expedient. The amendments in ASUs No. 2018-19, 2019-04, 2019-05 and 2019-11 are required to be adopted concurrently with the guidance in ASU No. 2016-13. The Partnership adopted the standards on their required effective date beginning January 1, 2020. The adoption of this guidance did not have a material impact on the Partnership's statement of financial condition. In December 2019, the FASB issued ASU No. 2019-12, *Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes.* The ASU is part of the FAS B's simplification initiative; and it is expected to reduce cost and complexity related to accounting for income taxes by eliminating certain exceptions to the guidance in ASC 740, *Income Taxes* related to the approach for intraperiod tax allocation, the methodology for calculating income taxes in an interim period, if applicable, the allocation of consolidated income tax expense to separate statement of financial condition of entities not subject to tax and the recognition of deferred tax liabilities for outside basis differences. The new guidance also simplifies aspects of the accounting for franchise taxes and enacted changes in tax laws or rates, and clarifies the accounting for transactions that result in a step-up in the tax basis of goodwill. The new standard will become effective for the Partnership beginning January 1, 2021 and, with certain exceptions, will be applied prospectively. Early adoption is permitted. Management is currently evaluating the impact of the new guidance on the Partnership's statement of financial condition. {9}------------------------------------------------ ## Aqua Securities, L.P. Notes to Statement of financial condition December 31, 2019 *(In Thousands)* ### **2. Fixed Assets, net** Fixed assets, net consisted of the following: | | December 31,
2019 | | |-------------------------------------------------|----------------------|-------| | Software, including software development costs | \$ | 3,268 | | Computer and communication equipment | | 204 | | Leasehold improvements and other fixed assets | | 113 | | | | 3,585 | | Less: accumulated depreciation and amortization | | 1,975 | | Fixed assets, net | \$ | 1,610 | At December 31, 2019, unamortized software development costs were \$1,571. ### **3. Intangibles Assets, net** Intangible assets, net consisted of the following: | | December 31, | | |-------------------------------------------------|--------------|------| | | | 2019 | | Patents | \$ | 416 | | Less: accumulated depreciation and amortization | | 382 | | Intangible assets, net | \$ | 34 | As of December 31, 2019, the weighted average remaining life of intangible assets was 2.2 years. ### **4. Related Party Transactions** Cantor and other affiliates provide the Partnership with administrative services and other support for which they charge the Partnership based on the cost of providing such services. Such support includes allocations for utilization of fixed assets, accounting, treasury, operations, human resources, legal, and technology services. In addition, for the year ended December 31, 2019, the Partnership was charged for allocated rent, utilities, maintenance and other occupancy related costs. The unpaid balances for all these services are included in Payables to related parties on the Partnerships' statement of financial condition A Cantor affiliate provides clearing and settlement services, under contractual agreements, to the Partnership. In connection with these services, Cantor collects the brokerage revenue and remits {10}------------------------------------------------ ### Notes to Statement of Financial Condition (continued) December 31, 2019 *(In Thousands)* ### **4. Related Party Transactions** *(continued)* to the Partnership on a monthly basis. The unpaid balances for these services are included in Payables to related parties in the Partnership's statement of financial condition. The Partnership has subordinated borrowings with affiliates. See Note 9 - Subordinated Borrowings for further detail related to these transactions. During the year ended December 31, 2019, \$153 and \$147 due to Cantor and BGC, respectively, was settled by a deemed contribution to the Partnership through Cantor and BGC's respective ownership interest in the Partnership. ### **5. Income Taxes** The Partnership recorded no net provision for income taxes due to the establishment of valuation allowance against the benefit for net taxable losses for the year ended December 31, 2019. As of December 31, 2019, the Partnership recorded deferred tax assets of \$1. 8 million, which consist primarily of net operating loss carryforwards and deferred tax liabilities of \$0 .1 million primarily related to depreciation. Deferred tax assets are available for offset against future profits, if and when they arise. The Partnership believes that it is more likely than not that the net deferred tax asset will not be realized. Accordingly, as of December 31, 2019, the Partnership has provided a valuation allowance of \$1. 7 million against this net deferred tax asset. The Partnership's UBT net operating loss of \$1.8 million will begin to expire in 2028. The Partnership has analyzed its tax positions with respect to applicable income tax issues for open tax years (in each respective jurisdiction) and determined that no material tax liabilities existed as of December 31, 2019. As of December 31, 2019, the Partnership did not accrue any interest or penalties. The Partnership is not presently under examination for United States federal, state, and local income tax purposes, and is no longer subject to examination by tax authorities for the years prior to 2016 in all jurisdictions. ### **6. Commitments and Contingencies** ### **Legal Matters** In the ordinary course of business, various legal actions are brought and may be pending against the Partnership. The Partnership is also involved, from time to time, in other reviews, investigations and proceedings by governmental and self-regulatory agencies (both formal and informal) regarding the Partnership's business. Any of such actions may result in judgments, {11}------------------------------------------------ ### Notes to Statement of financial condition (continued) December 31, 2019 *(In Thousands)* ### **6. Commitments and Contingencies** *(continued)* settlements, fines, penalties, injunctions or other relief. As of December 31, 2019, no such claims or actions have been brought against the Partnership and therefore no reserves were recorded. Legal reserves are established in accordance with F ASB guidance on Accounting for Contingencies, when a material legal liability is both probable and reasonably estimable. Once established, legal reserves are adjusted when additional information becomes available or when an event occurs requiring a change. ### **Risks and Uncertainties** The Partnership generates revenues by providing securities brokerage to institutional customers. Revenues for these services are transaction based. As a result, the Partnership's revenue could vary based on the transaction volume of the global financial markets. ### 7. **Regulatory Requirements** As a registered broker-dealer, the Partnership is subject to the SEC Uniform Net Capital Rule (Rule 15c3-l ). The Partnership has elected to compute its net capital using the basic method which requires the maintaining of minimum net capital, be the greater of \$5 or 6 2/3% of aggregate indebtedness. As of December 31, 2019, the Partnership had net capital of \$481, which was \$469 in excess of required net capital. ### **8. Financial Instruments and Off-Balance Sheet Risks** **Credit Risk** - Credit risk arises from potential non-performance by counterparties. The Partnership has established policies and procedures to manage the exposure to credit risk. The Partnership maintains a thorough credit approval process to limit exposure to counterparty risk and employ stringent monitoring to control the counterparty risk for the matched principal businesses. The Partnership's account opening and counterparty approval process includes verification of key customer identification, anti-money laundering verification checks and a credit review of financial and operating data. The credit review process includes establishing an internal rating and any other information deemed necessary to make an informed credit decision, which may include financials, correspondence, due diligence calls and a visit to the entity's premises, as necessary. **Customer Activities** - Certain market and credit risks are inherent in the Partnership's business. In the normal course of business the Partnership's customer activities include the execution of equity securities on behalf of customers. These activities may expose the Partnership to credit risk in the event the customer is unable to fulfill its contractual obligations. {12}------------------------------------------------ # Aqua Securities, L.P. Notes to Statement of Financial Condition (continued) December 31, 2019 ## *(In Thousands)* ### **8. Financial Instruments and Off-Balance Sheet Risks** *(continued)* **Operational Risk** - **In** providing services, the Partnership may be exposed to operational risk. Operational risk may result from, but is not limited to, errors related to transaction processing, breaches of internal control systems and compliance requirements, fraud by employees or persons outside the Partnership, business interruption due to systems failures or other events. Operational risk may also include breaches of the Partnership's technology and information systems resulting from unauthorized access to confidential information or from internal or external threats, such as cyber attacks. Operational risk also includes potential legal or regulatory actions that could arise as a result of noncompliance with applicable laws and/or regulatory requirements. In the case of an operational event, the Partnership could suffer a financial loss as well as reputational damage. ### **9. Subordinated Borrowings** The Partnership has two subordinated borrowings. The first borrowing is with Cantor Securities in the sum of \$1,020 and the second borrowing is with BGC in the sum of \$980. The current rate of interest on both borrowings is three month LIBOR plus 600 basis points. The scheduled maturity date on both borrowings is September 1, 2021. These borrowings are subordinated to the claims of general creditors, approved by Financial Industry Regulatory Authority ("FINRA") and other regulators, and are included in the Partnership's calculation of net capital and the capital requirements of FINRA 4120. ### **10. Revenue from Contracts with Customers** See Note 1 - General and Summary of Significant Accounting Policies for detailed information on the recognition of the Partnership's revenue from contracts with customers. **Contract Balances** - The timing of the Partnership's revenue recognition may differ from the timing of payment by its customers. The Partnership records a receivable when revenue is recognized prior to payment and the Partnership has an unconditional right to payment. If payment precedes the provision of the related services, the Partnership records deferred revenue until the performance obligations are satisfied. The Partnership had receivables related to revenue from contracts with customers of \$6 at December 31, 2019. The Partnership did not have any deferred revenue at December 31, 2019. {13}------------------------------------------------ ## Aqua Securities, L.P. Notes to Statement of Financial Condition (continued) December 31, 2019 *(In Thousands)* #### **11. Subsequent Events** The Partnership has evaluated subsequent events through the date the statement of financial condition was issued. There have been no additional material subsequent events that would require recognition in the statement of financial condition or disclosure in the notes to statement of financial condition. Source: SEC EDGAR via Adviser Search (https://search.stillhousedata.com). Agents: see https://search.stillhousedata.com/llms.txt.